New tool to boost environmental management in private equity

New tool to boost environmental management in private equity

The Environmental Defense Fund (EDF) is turning to the private equity industry for greater adoption of environmental management practices in the private sector.

A culmination of four years of work with leading private equity players -- which includes Kohlberg Kravis Roberts & Co. (KKR), The Carlyle Group and Oak Hill Capital Partners -- EDF recently announced that it is releasing a tool for any private equity player to better evaluate non-financial performance via environmental, social and governance (ESG) indicators.

“We saw private equity as a vehicle for speeding up advancement of environmental and social management,” said Tom Murray, managing director with EDF’s corporate partnerships program.

Large private equity firms oversee the management of dozens of companies. In an industry with such a widespread reach, ESG management becomes a much more scalable opportunity.

The tool, which is free to download as an Excel file, provides a framework for private equity firms to assess and improve ESG management. It allows firms to plug in data to evaluate their current ESG performance and offers steps they can take to improve in their performance.

“Reviewing the [t]ool helped expand our thinking about ESG management and best practices,” said J. Taylor Crandall, managing partner of Oak Hill Capital, in a statement. “EDF’s new [t]ool provides clear and helpful guidance on the building blocks necessary for a successful ESG program.”

In EDF’s work with the private equity industry so far, the nonprofit has shown the extensive cost savings as well as environmental benefits of implementing such a program. Over the past four years, the program has resulted in $370 million in operating cost savings and 820,000 metric tons of carbon emission reduction at more than 30 portfolio companies at the three private equity firms.

EDF recently talked with GreenBiz about how its pilot program with Oak Hill Capital focused on finding environmental changes along with financial opportunities in middle-market portfolio companies.

“Our work with the private equity industry has shown that doing this can create hundreds of millions in value creation and millions of tons in carbon reduction,” said Murray. “There’s a strong business case.”

The release of the tool is also the result of growing interest among some investors for greater consideration of ESG factors, noted Murray.

“Institutional investors -- state pension funds, college endowments -- are increasingly interested in environmental, social and governance performance and are pressuring private equity to do more,” he said.

Although EDF’s work with the private equity industry began four years ago, development of this tool didn’t begin until this past year, and incorporated feedback from major companies such as Blackstone Group, Bloomberg LP and PwC.

A big focus for EDF in 2013 will be on encouraging the use of the tool.

“Our goal is to expand this,” said Murray. “Many market leaders are aggressively pursuing ESG management practices. It’s becoming standard practice to create value across a portfolio. We hope this tool will be a resource to help improve performance and advance that conversation.”